THE INCENTIVE GAP

The Incentive Gap exists primarily because of the lack of sufficient motivations or drivers for various sectors of society to embrace circular principles. At the leadership level, particularly within businesses and corporations, there may be a failure to recognize the circular economy as a strategic priority. This can stem from a focus on immediate financial returns and a lack of understanding about the long-term economic and environmental benefits of circular practices, as well as the global geopolitical context it takes place in. As leaders often play a pivotal role in setting strategic directions and fostering organizational culture, it represents a major hurdle to overcome.

The financial incentives, or lack thereof, are also crucial in driving or impeding the transition to a circular economy. Under current economic structures, linear models often appear more lucrative because they promise quicker returns on investment. Conversely, circular models, though more sustainable in the long run, typically require substantial upfront investment and may take longer to manifest financial benefits. Without adequate financial incentives such as tax incentives, subsidies, or favorable financing, businesses might find the transition to a circular model economically challenging, perpetuating the Incentive Gap.

Closing the gap:

Develop an integrated approach that involves aligning financial incentives, promoting leadership buy-in, and encouraging cultural shifts as well as risk taking in both product design and business model. Those with the necessary financial strength should lead the way.

The Efficiency Gap

In the transition to carbon-neutral circular societies we are likely to face the challenge of Jevons Paradox. Named after the 19th-century economist William Stanley Jevons, he argued that as technological progress increases the efficiency with which a resource is used, the rate of consumption of that resource may also increase, rather than decrease as might be expected. Consequently, our attempts to make processes more energy-efficient could inadvertently lead to an increase in overall energy consumption, a phenomenon commonly referred to as the "rebound effect."

Transportation, for instance, as it becomes more energy efficient, may increase in usage due to lower costs associated with travel, leading to a rebound in energy consumption. The Digital Transition for example, is expected to require an unprecedented amount of mined materials, thus raising questions about the sustainability of the digital revolution. The production and disposal of digital devices pose substantial challenges to the circular economy, and the demand for rare earth elements could generate new pressures on resource extraction and thus result in more emissions while focus lies on efficiency.

Closing the gap:

To address this gap, strategies must – simply put – be put in place to ensure that improvements in energy efficiency do not lead to exponential increases in energy consumption. This may involve regulatory measures, economic incentives, and awareness campaigns to curb the rebound effect.

The Demand Gap

The "Demand Gap" introduces a critical yet often overlooked aspect of transitioning to a circular economy. At its core, it addresses the disparity between the supply of collected and recycled materials and the often insufficient demand for these materials, hindering the profitability and efficiency of circular practices.

One prevalent manifestation of the Demand Gap is visible in linear material flows, particularly in industries like plastics and textiles. Historically, these materials, after collection and sorting, are often relegated to waste-to-energy pathways, such as incineration, instead of being reintegrated into the economy. This counterproductive cycle negates the very principles of a circular economy.

Closing the gap:

To address this demand gap, innovative and sustainable business models that foster a robust demand for collected and recycled materials are needed. An exemplary initiative is Vinnova's industrial push on textiles, where commercial pre-sorting has become a critical link in creating new circular value chains. This initiative prevents the irresponsible disposal of collected textiles in countries outside Europe and instead fosters their reintegration into a circular textile industry.

Another noteworthy example is Svensk Plaståtervinning AB's significant investment in Motala Site Zero, a testament to the profitability of effective plastic recycling. However, as CEO Mattias Philipsson points out, successful implementation also hinges on increased regulations to curb the wasteful linear plastic recycling practices.

Bridging the Demand Gap is a dual challenge: stimulating demand for recycled materials and establishing regulatory structures that foster circular practices. These twin paths represent a promising way to harness the potential of a truly circular economy.

AN UNCOMFORTABLE GAP?

”The transition will be fair or it will not be...” said French economist Jean Pisani-Ferry. And there is something to it. Given the scale of the transformation and the elements discussed in the previous gaps, everyone has their role to play. And in a period of history where everything can be made visible – everything from carbon emissions viewed from space and billionaires jet trips on Twitter – symbols will likely be extremely important. It is probably not a complete coincidence that a debate is currently taking place in Europe over the ban of private jets. Amsterdam Schipol airport went first, while certain French members of parliament have proposed banning private jets altogether. Primarily because they are indeed a symbol of the extremely high carbon and material footprints of the ultra-wealthy. So if people are to called upon to adopt sobriety in their consumption patterns, similar rules likely ought to apply to everyone.